This question has come to fore after ONGC's overseas arm, ONGC Videsh (OVL),
purchased 8.4% of the giant Kashagan oil field
in Kazakhstan for $5 billion in a deal which is for the span of 25 years.
Located in the north Caspian Sea, this is the world's largest oil discovery since
1968, with reserves estimated to be as high as 30 billion barrels. Let’s
look at some other major countries for comparison. China prefers acquiring
assets; Japan opts buying oil, instead. India opts for both. So now lets look at both
cases. With crude prices at $100 per barrel, OVL will recover the
full value of its investment in a little more than six years. If prices fall,
it will take longer. Thus this deal might not be good in near term. This
Kashagan oil field is estimated to have very high capacity and output capacity
of 3mn barrels/day. Keeping this factor it looks quite a lucrative deal in long
term but, if it turns out to be a disaster similar to its $2-billion deal to
buy Russia's Imperial Energy it would dent the
comapny and the country very badly as OVL has exhausted all its reserves in
this deal. But the Kashagan deal is unlikely to suffer the same
fate because of its huge estimated capacity. One more fear was that it might be difficult to
transport this oil to India but this fear is warded off as this output can be
swapped with any other seller worldwide. Thus this recent buying spree may be
good to secure energy sources for the country and meet its long-term production
goals. The other side of
discussion i.e. importing oil cannot be declined this easily. Experience shows
that functional oil markets offer security, with some reserves thrown in and
oil markets functioned even during the two Gulf wars. It is completely the government’s
policies whether it wants to stick to importing or go for buying fields. So is
it right to buy fields or import oil?
3 comments:
Buying oil fields is definitely the way forward in securing the oil needs of the country. But this a long term policy and the amount of oil needed by us would require OVL to buy many more of such fields. Buying fields can help reduce imports in the short term to a small extent but still in the years to come importing oil is the best solution.
Buying oil fields has an advantage. It would probably reduce the pressure on the trade deficit that is one of the major concerns for India as of now. And if we show some signs of optimism then I think 6 years is not a long time and ONGC might recover earlier. So I think buying oil fields is going to be a strategic step.
OIl industry is a capital intensive industry and hence breakdown period ranges from 5-10 years, so no cause of concern for ongc. Regarding the projected capacity of the field, it depends on topography of region, company involved and the technology employed. Hence that would remain a cause of concern.
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